GOOD NEWS: Some Stocks Won't Be Horrible Investments Over The Next 7 Years -- Just Don't Buy Bonds

Jeremy Grantham's firm GMO has released its 7-year asset class
forecasts based on prices at the end of October.

Like some other long-term forecasts, GMO's are based on an
expected reversion to the mean for 1) prices relative to
earnings, and 2) profit margins.

Today's corporate profit margins are abnormally high--extremely
high, actually--which makes stocks look much cheaper than they
actually are on a PE basis. (Temporarily high earnings produce a
temporarily low P/E ratio). Assuming profit margins revert to
their means, this will act as a drag on earnings growth over the
next several years.

The key points of GMO's forecasts:

The US stock market as a whole will deliver lousy
returns of ~0% per year for the next 7 years, after adjusting
for inflation. This is true for both big stocks and
small stocks.

US "high quality" stocks--companies with no or low debt
and high cash flow--are priced to deliver a below-average but
perfectly acceptable return of ~5% after inflation.

International stocks are forecast to deliver ~5% per
year.

Emerging markets stocks will deliver an almost-average
~6% per year.

With the exception of the overall US market forecast, those are
fine returns. With cash yielding nothing and bonds
producing a below-inflation return, a projected return of ~5% per
year is compelling.

But then come bonds and cash.

With the exception of emerging market debt, bonds are priced to
deliver truly lousy returns over the next 7 years--losses of 1%
to 3% per year after inflation. And cash is priced to break even.

So, what's the best asset class, according to GMO's chart?

Timber.

Timber is priced to return 6.5% per year, after inflation.

Unfortunately, to buy "timber" as an asset class, you have to
have the resources and wherewithal to acquire forests and manage
them. (Or, to have a big ole pile of money and hire GMO to do it
for you.)